India pays for UAE crude oil in rupees for the first time ever

India, positioned as the world’s third-largest energy consumer, recently executed its inaugural payment in rupees for crude oil sourced from the United Arab Emirates (UAE), marking a potential strategic move to promote its local currency on a global scale. This development aligns with India’s broader agenda to diversify oil suppliers, curtail transaction expenses, and establish the rupee as a credible currency for trade settlements. In tandem with this initiative, the Reserve Bank of India had earlier, on July 11, 2022, sanctioned importers to conduct transactions in rupees while enabling exporters to receive payments in the same currency.

Officials stress that the internationalization of the rupee is an ongoing process without specific outlined targets. In July, India formalized an agreement with the UAE for rupee-based settlements, a significant step that led the Indian Oil Corporation (IOC) to make payments for procuring one million barrels of crude oil from the Abu Dhabi National Oil Company (Adnoc) using Indian rupees. Additionally, some of India’s imports of Russian oil have also been settled in rupees.

As India heavily relies on imports to satisfy over 85% of its oil requirements, the nation has adopted a multifaceted strategy emphasizing sourcing from cost-effective suppliers, diversifying supply sources, and adhering to global commitments. This approach proved advantageous, particularly during the escalation of Russian oil imports, resulting in substantial savings for India.

Despite these efforts, India’s aspiration to conduct trade settlements in rupees instead of dollars to streamline transactions by eliminating currency conversions encounters obstacles. While there have been successes in non-oil trade settlements with specific nations, overall, oil exporters have been cautious about embracing the rupee. Their concerns primarily revolve around fund repatriation and high transactional costs.

Addressing a parliamentary standing committee, the oil ministry highlighted that while payments for crude oil can be made in Indian rupees contingent on suppliers following regulatory guidelines, there’s been limited international interest among suppliers due to apprehensions regarding fund repatriation and elevated transactional expenses.

In the financial year 2022-23, India expended $157.5 billion to import 232.7 million tonnes of crude oil. Key suppliers included Iraq, Saudi Arabia, Russia, and the UAE, with West Asia contributing 58% of the overall supplies. Notably, India’s domestic supply meets less than 15% of its demand.